Ambac Financial ( ABK) reported a fourth-quarter loss of $3.26 billion as the troubled bond insurer evaluates options to salvage a business that has been hammered by a severe capital shortfall and ratings cuts. The New York-based financial guarantor lost $31.85 a share amid a writeoff of $5.2 billion of esoteric credit-related exposures. Ambac earned $202.7 million, or $1.88 a share, a year ago. On Friday, Ambac abandoned a plan to raise about $1 billion; this resulted in it becoming the first major monoline insurer to lose its triple-A credit rating when Fitch Ratings cut the insurer to double-A from triple-A. So far, Standard & Poor's and Moody's Investors Service have not responded with their own cuts to the firm's rating.
Cramer: The Guy Who Might Save Ambac
The downgrade to the company's rating puts its outlook in jeopardy, because a high rating is critical to monoline bond insurers' ability to write insurance contracts for municipalities and originators of more complex debt securities. Ambac underwrites some $556 billion of municipal and structured finance debt. Michael Callen, Ambac's newly installed chairman and interim CEO, said the company's liquidity position was "strong," but also noted the firm "is evaluating strategic alternatives with a number of potential parties." "We are exploring the attractiveness of these alternatives as we look for opportunities that will grow shareholder value and enable us to build on Ambac's fundamental strengths," Callen said in a company-issued statement on Tuesday. Ambac and other bond insurers, including larger debt insurer MBIA ( MBI), have been under extreme duress as ratings agencies continue to require that the firms put in place sufficient capital to cover the possibilities of defaults on debt that they insure. The capital shortfall has put monoline insurers are in a mad dash for cash, or else they risk essentially going out of business. Debt linked to monoline insurers represents some $2.5 trillion, and the possibility of cascade of ratings cuts may lead to massive writedowns of debt insured by firms such as Ambac and MBIA.